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of higher incomes than they are currently earning. Thus, super-normal profits are either a short-run, disequilibrium phenomenon, or the result of barriers to entry. This suggests the role of supernormal profits in the processes of adjustment of a free market ECONOMYas being an indicator of resource deficiency’ they indicate that resources are relatively more scarce than in other areas in the economy which are just earning normal profits, and at the same time provide the attraction which, in the absence of entry barriers, leads to the appropriate expansion in scale of resources devoted to that particular activity. knight, f. h.
Profit-and-loss account. s> double-entry book-keeping.
Profit, falling rate of. The early classical economists (c£> classical economics) believed that it was a feature of the economic system for the general rate of profit to decline, adam smith argued that capital accumulation took place at a faster rate than the growth of total output. Although the absolute level of profits rose, competition lowered the rate of return on capital. For ricardo, the decline of the general rate of profit was induced by the decline in the marginal productivity of land, to which all profits were linked, marx took up ideas similar to Smith’s, and predicted a fall in the rate of profit because of an intensification of competition between capitalists (c£> capitalism). There would follow, he concluded, a strong pressure to reduce real wages.
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